Square D Company and Subsidiaries - Page 6

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               The change in the Trust year would allow the                           
               contribution to be made in December of future years,                   
               thus providing a permanent deferral of the related tax                 
               liability.  This change is necessary because the limit                 
               on the addition to a qualified asset account is tested                 
               at the Trust's year end.  With the contribution in                     
               December, a full year's funding could be made, and                     
               therefore, the addition to asset account limits would                  
               be satisfied (at November 30), and the deduction would                 
               still fall within Square D's calendar year.                            
                        *     *     *     *     *     *     *                         
               Conclusion                                                             
               The delay in the enactment of the more stringent                       
               funding requirements passed by the Tax Reform Act of                   
               1984 has left open a window of opportunity that will be                
               closed on January 1, 1986.  By accruing or actually                    
               making a payment to the VEBA, Square D will be able to                 
               accelerate a deduction which would otherwise be taken                  
               in the following year.  Continuing this funding pattern                
               in future years will allow Square D in essence to                      
               receive a permanent deferral of tax on the amount.                     
          An internal memorandum dated December 17, 1985, from D.S. Free to           
          D. E. Wilson and J. M. Vetta states:                                        
               The Tax Department has proposed that the Trust adopt a                 
               fiscal taxable year ending November 30th in order to                   
               avoid the new limitation on pre-funding of the Trust.                  
               Because the limit on additions to the Trust's reserves                 
               is tested at the Trust's year end, the fiscal year                     
               would allow the Trust to meet the test as of November                  
               30th, which means Square D could pre-fund its entire                   
               liability for the following year in December of the                    
               current year.                                                          
               Pre-funding of the Trust will allow Square D to                        
               accelerate the recognition, for tax purposes only, of                  
               $36,500,000 of 1986 expenses into 1985.  Assuming the                  
               Company's contributions to the Trust do not decline in                 
               future years, we will have deferred payment of                         
               $18,250,000 of taxes permanently.  If tax reform                       
               legislation produces a corporate tax decrease, this                    
               plan will also produce a permanent tax benefit.                        






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